MSG Explores Spin-Off

Madison Square Garden Co., said its board of directors has unanimously approved a plan to explore a spin-off that would separate its iconic live entertainment venues like the Madison Square Garden Arena, The Beacon Theater and The Forum in Los Angeles, from its professional sports teams like the New York Knicks and New York Rangers and media properties MSG Networks.

The move would come about four years after MSG agreed to split itself off from Cablevision Systems in a deal that at the time was made to simplify the company structure. In a statement late Monday, MSG said it had been considering the latest spin off since July and that if completed, it would be intended to “benefit both new companies by allowing each of them to have a balance sheet, capital structure and capital return policy most appropriate for its business.

MSG said its board has authorized the repurchase of up to $500 million of its Class A Common stock and announced director nominees for this year’s annual board meeting, including two new independent directors – former Triarc Cos. Chairman and CEO Nelson Peltz and Thomas H. Lee Partners co-president Scott Sperling, who will replace Alan Schwartz and former New York State Economic Development director Vincent Tese who have been nominated by the board for election as dirstors by the company’s Class B shareholders. Former Time Warner Inc. chairman and CEO Richard Parsons was reappointed as a director on Sept. 29 and has been nominated for election by the holders of MSG’s Class A common stock.

“We have been considering the addition of new independent directors for some time,” MSG executive director Jim Dolan said in a statement. “Backed by decades of business and investment experience as well as a genuine passion for our business, we are confident that Nelson and Scott will be valuable additions and sources of independent perspectives. At the same time, Dick’s return to the Board brings a combination of expertise, independence, and continuity given his previous tenure on the MSG Board. We welcome their combined insights as we continue to pursue our strategies to create long-term shareholder value, including our current plan to explore creating two new distinct companies. We are also delighted that Alan and Vincent have been nominated for election by our Class B shareholders. They have been valuable contributors to the Board and we look forward to their continued involvement.”

MSG said if it goes through with the spin, it would be structured as a tax-free pro rata spin-off to all MSG shareholders. Upon completion of the contemplated spin-off, MSG shareholders would own shares in both of the new companies, which would provide shareholders with the ability to more clearly evaluate each company’s businesses and prospects.

“Investors favor companies with greater strategic focus on their core businesses,” said MSG CEO Tad Smith in a statement. “We are exploring the opportunity to improve upon the excellent shareholder return created since MSG’s spin-off over four years ago by separating our business into two companies, each with its own distinct value proposition for investors. The live entertainment company would be a premier live event and venue management company with expertise in areas such as productions and other entertainment content, marketing, sales, and event operations. The sports and media company would be a leading company that fields championship caliber sports teams and has the rights to distribute sports content on multiple media platforms. The first company would capitalize on significant opportunities to grow rapidly within the changing entertainment landscape. The second would enjoy steady growth and high cash flow that we expect will result in capital returns to shareholders.”

The move also could have been spurred by the recent spike in valuations in National Basketball Association teams after former Microsoft CEO Steve Ballmer paid $2 billion for the Los Angeles Clippers. Mario Gabelli, whose Gamco Investors investment firm owns about 4.65% of MSG stock, in a Twitter posting on May 29 after the Clippers sale, said: “Clippers for $2 billion…nyknicks for free when you buyMSG … (run the numbers).”

MSG’s current market cap is about $5 billion. According to Forbes magazine, the Knicks, considered to be the league's most valuable franchise, increased their value to about $4.87 billion from $1.4 billion in the wake of the Clippers deal.

MSG stock, which closed at $65.78 each on Monday (up 1.6% or $1.02 each) was trading as high as $76.67 (up 16.6% or $10.89 per share) in after-hour trading Monday night.

According to MSG, in addition to its word-calls venues the Madison Square Garden Arena, Radio City Music Hall, The Beacon Theater, The Forum in Los Angeles, the Wang Theater in Boston and the Chicago Theater, the live entertainment company would include:

MSG booking, an established industry leader, which effectively fills MSG’s venues with a wide variety of the most exciting and unforgettable events, including concerts, family shows and special events

MSG’s productions, including the Radio City Christmas Spectacular, the nation’s #1 live holiday family show featuring the legendary Rockettes, and New York Spring Spectacular, a new large scale theatrical production set to debut in spring 2015

MSG’s first-class venue management capabilities, as well as its sponsorship, marketing, ticketing and promotional expertise and platforms

MSG’s strategic entertainment joint ventures.

The sports and media company would include:

MSG’s professional sports franchises: the New York Knicks, the New York Rangers and the New York Liberty, and its development teams: the Hartford Wolf Pack and the Westchester Knicks

MSG’s regional sports networks, MSG Network and MSG+

MSG’s interest in SiTV Media Inc., the parent company of NUVOtv and Fuse networks

Madison Square Garden said it has not set a timetable for completion of this process. Completion of the spin-off will be subject to various conditions, as well as final MSG Board approval. LionTree Advisors is serving as financial advisor for the spin-off.